CPPIB is venturing into the Malaysian real estate business for the first time.

The Canada Pension Plan Investment Board (CPPIB), the largest pension fund manager in Canada and one of its most active dealmakers, said on Tuesday it has invested C$170 million (US$130 million), or equivalent to a 49 percent stake, in a Malaysian real estate joint venture.

This is CPPIB's first direct real estate investment in the Southeast Asia region.

Toronto-based CPPIB said along with the Pavilion Group it has formed a venture to invest in Pavilion Damansara Heights, a multi-billion "blue-chip" mixed development project in suburban Kuala Lumpur.

The project is a freehold development that integrates corporate towers, luxury residences and a retail galleria located less than 10km (6.2 miles) from Malaysia's iconic Petronas Twin Towers.

"This joint venture fits well with our investment strategy as it provides us with a great opportunity to work with a smart partner in a high-quality real estate asset that will provide attractive risk-adjusted returns over the long term," Jimmy Phua, CPPIB's head of real estate investments in Asia, said in a statement.

By convention, the CPPIB invests funds that are not needed by the Canada Pension Plan to pay current benefits. As of the end of June this year, the fund's net assets totalled C$268.6 billion.

The entire project will cover a total area of 15.84 acres, which will be divided over two development phases.

Its proposed retail galleria here will be operated by the Pavilion Group. The mall is expected to be the biggest in the vicinity, serving the affluent populace of Damansara Heights, Bangsar, Sri Hartamas and Seputeh.

According to sources close to the project, at least nine of the office blocks in the first phase have been sold on enbloc basis to corporations nearing a benchmark price of RM1,500 psf. These blocks come with naming rights for the respective owners.

At this price, rental for the office space will have to be RM8 psf in order to generate an annual yield of 6%. This rental rate is only seen in Kuala Lumpur city centre at the moment, not in a suburban location like Damansara Heights.

With such extraordinary interest received for the offices amid the fear of an oversupply of office space, it was believed that the service apartments could be previewed by the first half of next year at a price from RM1,500 psf onwards.

If true, this price would be significantly higher than the going rate for high-end apartments in Bangsar which is between RM1,200 to RM1,400 psf.